Pound May Climb to $1.80 in 2011 on Better Growth, Barclays Says

The pound may rise to $1.80 by the end of 2011 as higher inflation and lower debt boost the U.K. economy while rising oil prices hamper growth in the U.S., according to Barclays Plc.

The pound may rally against the dollar to a level last reached in September 2008 as the U.K. economic recovery accelerates faster than that of the U.S., Paul Robinson, head of European currency strategy at Barclays in London, wrote in a note to clients yesterday. The pound is one of the most undervalued among the Group of 10 currencies, according to Bloomberg data.

“The U.K.’s longer-term issues are being addressed more quickly and, in our view, more convincingly, than those in the U.S.,” Robinson wrote. “Oil prices may become a more important factor in 2011, and we think the past relationship with the U.S. dollar will persist.” He didn’t respond to the phone call seeking further comment.

The pound has dropped 18 percent since the start of 2008, when the world’s deepest recession since World War II took hold. It rose 0.6 percent to $1.5632 at 4:30 p.m. yesterday in New York.

U.K. Prime Minister David Cameron’s coalition government in October introduced the nation’s biggest spending cuts in 65 years. In the U.S., the Senate has approved tax cuts that will widen the budget deficit. The nation reported on Oct. 15 its second-largest annual budget deficit, $1.29 trillion, for the fiscal year ended Sept. 30.

Price Pace

U.K. inflation accelerated to a 3.3 percent annual rate in November, the ninth month above the government’s 3 percent upper limit, as food and clothing costs climbed. The consumer-price index in the U.S. climbed 1.1 percent at an annual rate in November, matching the median forecast by economists in a Bloomberg survey.

The price of crude oil has gained 11 percent so far this year.

Investors shouldn’t buy the pound versus the dollar yet, as sovereign-debt concern in Europe may spread to the U.K. and weigh on the pound, Robinson wrote.

“The problems facing the euro area’s periphery may weaken the euro and, by extension, the pound against the dollar in the short run,” Robinson wrote.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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